China has approved a long-awaited $1.3 billion joint venture between its carmaker Dongfeng and France's Renault, the only global top 10 automaker not producing in the world's biggest market, the firms said Thursday.
The deal was announced as French Prime Minister Jean-Marc Ayrault arrived in China for a five-day visit expected to be dominated by trade issues.
Analysts said the merger appeared to be a move by the Renault-Nissan alliance to secure its position in China, where Japanese brands often fall victim to fiery nationalism when ties between Beijing and Tokyo turn sour.
Renault and Dongfeng will each have a 50 percent share in the new company, the Chinese firm said, adding the government had approved the deal and "the production of 150,000 multiple-purpose vehicles and engines per year".
The two will invest a total of 7.8 billion yuan or $1.3 billion in the joint venture, which will be based in the central city of Wuhan, said Dongfeng, China's second-biggest carmaker.
Renault is Nissan's largest shareholder, with a 43.4 percent stake, while Japan's number two automaker has around 15 percent of the French company.
"Given the prospects for Japanese brands in China, Renault and Nissan probably want to have two brands here to consolidate their foothold," John Zeng, an analyst with Shanghai-based consultant firm LMC Automotive, told AFP.
"The Nissan brand has easily been affected when China-Japan relations have had problems," he said.
Nissan, which operates in China in a partnership with Dongfeng, depends on the country for about one-quarter of its global sales.
It took a huge hit last year when a Tokyo-Beijing territorial dispute set off sometimes violent demonstrations in China and a consumer boycott of Japanese brands. It has since been trying to claw its way back to a previous 7.7 percent market share.
The project with Renault has been a decade in the making, after a previous unsuccessful joint venture by the French firm in China.
"Renault will use this opportunity to strengthen its scale and depth in the Chinese market and extend its industrial footprint," the firm said.
Ayrault, speaking in Beijing, welcomed the announcement.
"This is good news," he said. "It means that this immense market will open up to a French automobile group that until now has been practically absent from it."
Renault began operations with China Space Sanjiang Group in 1993 to manufacture the Traffic minibus, but production stopped in 2003. Dongfeng and Renault have been in talks since then.
The company has so far trailed rivals such as US auto giant General Motors and Volkswagen of Germany, which have both been running multiple joint ventures in China for decades.
General Motors sold 2.81 million units in China last year, up 11 percent from 2011, while Volkswagen's sales jumped 25 percent year-on-year to 2.84 million cars.
Total auto sales in China rose 4.3 percent year-on-year in 2012 to 19.31 million, hit by limits on numbers imposed by some cities to ease traffic congestion and tackle pollution.
But a report by the consultancy McKinsey predicted last year that the country's passenger car market would grow eight percent annually to 22 million units by 2020.
Dongfeng has previously been reported to be negotiating to buy a stake in another French car firm, PSA Peugeot Citroen, with which it already has a joint venture.
The Dongfeng group, including its joint ventures, sold a total of 3.08 million vehicles in China last year, according to industry group China Association of Automobile Manufacturers, giving it around a 16 percent market share.
"Through entering into the joint venture contract with Renault SA and the establishment of the joint venture, the overall competitiveness, brand value and technical strength and profitability of Dongfeng will be enhanced," the Chinese firm said.
Each company will appoint four of the joint venture's eight directors, Dongfeng said, with production to be increased "according to market needs", including vehicles using alternative energy. (AFP)